<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ____________
<TABLE>
<CAPTION>
<S> <C>
Commission File Number: 33-96858-01 Commission File Number: 33-96858
COMMUNICATIONS & POWER INDUSTRIES COMMUNICATIONS & POWER
HOLDING CORPORATION INDUSTRIES, INC.
(Exact name of registrant as (Exact name of registrant as
specified in its charter) specified in its charter)
DELAWARE DELAWARE
(State of Incorporation) (State of Incorporation)
77-0407395 77-0405693
(I.R.S. employer identification number) (I.R.S. employer identification number)
607 HANSEN WAY 607 HANSEN WAY
PALO ALTO, CALIFORNIA 94303-1110 PALO ALTO, CALIFORNIA 94303-1110
(650) 846-2900 (650) 846-2900
(Address, including zip code, and telephone (Address, including zip code, and telephone
number, including area code, of registrant's number, including area code, of registrant's
principal executive offices) principal executive offices)
Securities registered pursuant to Section Securities registered pursuant to Section
12(b) of the Act: 12(b) of the Act:
NONE NONE
Securities registered pursuant to Section Securities registered pursuant to Section
12(g) of the Act: 12(g) of the Act:
NONE NONE
</TABLE>
Indicate by check mark whether each registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ].
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding for each of the Registrant's classes
of Common Stock, as of the latest practicable date: COMMUNICATIONS & POWER
INDUSTRIES HOLDING CORPORATION: 4,908,172 SHARES OF COMMON STOCK, $.01 PAR
VALUE, AT JUNE 30, 2000. COMMUNICATIONS & POWER INDUSTRIES, INC.: 1 SHARE OF
COMMON STOCK, $.01 PAR VALUE, AT JUNE 30, 2000.
================================================================================
<PAGE> 2
COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
and subsidiaries
COMMUNICATIONS & POWER INDUSTRIES, INC.,
and subsidiaries
(A wholly owned subsidiary of Communications
& Power Industries Holding Corporation)
<TABLE>
<CAPTION>
PART 1: FINANCIAL INFORMATION
COMMUNICATIONS & POWER INDUSTRIES, INC.
<S> <C>
Consolidated Condensed Balance Sheets, June 30, 2000 and October 1, 1999... 2
Consolidated Condensed Statements of Operations, 13-week period ended
June 30, 2000 and 13-week period ended July 2, 1999........................ 3
Consolidated Condensed Statements of Operations, 39-week period ended
June 30, 2000 and 39-week period ended July 2, 1999........................ 4
Consolidated Condensed Statements of Cash Flows, 39-week period ended
June 30, 2000 and 39-week period ended July 2, 1999........................ 5
COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
Consolidated Condensed Balance Sheets, June 30, 2000 and October 1, 1999... 6
Consolidated Condensed Statements of Operations, 13-week period ended
June 30, 2000 and 13-week period ended July 2, 1999........................ 7
Consolidated Condensed Statements of Operations, 39-week period ended
June 30, 2000 and 39-week period ended July 2, 1999........................ 8
Consolidated Condensed Statements of Cash Flows, 39-week period ended
June 30, 2000 and 39-week period ended July 2, 1999........................ 9
Notes to Consolidated Condensed Financial Statements....................... 10
Management's Discussion and Analysis of Financial Condition and Results
of Operations.............................................................. 13
PART II: OTHER INFORMATION
Other Information ......................................................... 16
SIGNATURES......................................................................... 17
</TABLE>
================================================================================
-1-
<PAGE> 3
COMMUNICATIONS & POWER INDUSTRIES, INC.,
and subsidiaries
(A wholly owned subsidiary of Communications
& Power Industries Holding Corporation)
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands-unaudited)
<TABLE>
<CAPTION>
June 30, October 1,
ASSETS 2000 1999
--------- ----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 3,022 $ 4,247
Accounts receivable, net 47,274 49,596
Inventories 62,727 52,526
Deferred taxes 6,899 6,899
Other current assets 1,458 1,524
--------- ---------
Total current assets 121,380 114,792
Property, plant, and equipment, net 71,141 76,225
Goodwill and other intangibles, net 26,718 28,723
Debt issue costs, net 4,853 5,594
Deferred taxes 8,250 8,250
--------- ---------
Total assets $ 232,342 $ 233,584
========= =========
LIABILITIES, REDEEMABLE
PREFERRED STOCK AND EQUITY
CURRENT LIABILITIES
Revolving credit facility $ 35,000 $ 35,000
Current portion of term loans 6,996 7,700
Current portion of capital leases 941 885
Accounts payable 15,310 13,522
Accrued expenses 19,803 16,489
Product warranty 3,250 3,575
Income taxes payable 9,283 8,978
Advance payments from customers 7,633 1,736
--------- ---------
Total current liabilities 98,216 87,885
Senior term loans 12,000 15,986
Senior subordinated notes 100,000 100,000
Obligations under capital leases 1,137 1,825
--------- ---------
Total liabilities 211,353 205,696
--------- ---------
SENIOR REDEEMABLE PREFERRED STOCK 27,206 24,228
--------- ---------
Commitments and contingencies
STOCKHOLDERS' (DEFICIT) EQUITY:
Junior preferred stock 1 1
Common stock - -
Additional paid-in capital 37,659 35,804
Accumulated deficit (42,756) (31,039)
Stockholder loans (1,121) (1,106)
--------- ---------
Net stockholders' (deficit) equity (6,217) 3,660
--------- ---------
Total liabilities, senior redeemable
preferred stock and stockholders' equity $ 232,342 $ 233,584
========= =========
</TABLE>
See accompanying notes to the unaudited consolidated condensed financial
statements.
-2-
<PAGE> 4
COMMUNICATIONS & POWER INDUSTRIES, INC.,
and subsidiaries
(A wholly owned subsidiary of Communications
& Power Industries Holding Corporation)
CONSOLIDATED CONDENSED
STATEMENTS OF OPERATIONS
(in thousands - unaudited)
<TABLE>
<CAPTION>
13-Week 13-Week
period ended period ended
June 30, July 2,
2000 1999
------------ ------------
<S> <C> <C>
Sales $ 66,367 $ 62,292
Cost of sales 49,894 54,034
-------- --------
Gross profit 16,473 8,258
-------- --------
Operating costs and expenses:
Research and development 2,476 2,332
Selling and marketing 4,737 4,987
General and administrative 4,876 6,012
-------- --------
Total operating costs and expenses 12,089 13,331
-------- --------
Operating income (loss) 4,384 (5,073)
Foreign currency loss (119) (203)
Interest expense (4,681) (4,386)
-------- --------
Loss before taxes (416) (9,662)
Income tax expense 170 422
-------- --------
Net loss (586) (10,084)
Preferred dividends:
Senior redeemable preferred stock 972 847
Junior preferred stock 648 565
-------- --------
Net loss attributable to common stock $ (2,206) $(11,496)
======== ========
</TABLE>
See accompanying notes to the unaudited consolidated condensed financial
statements.
-3-
<PAGE> 5
COMMUNICATIONS & POWER INDUSTRIES, INC.,
and subsidiaries
(A wholly owned subsidiary of Communications
& Power Industries Holding Corporation)
CONSOLIDATED CONDENSED
STATEMENTS OF OPERATIONS
(in thousands - unaudited)
<TABLE>
<CAPTION>
39-Week 39-Week
period ended period ended
June 30, July 2,
2000 1999
--------- ---------
<S> <C> <C>
Sales $ 181,697 $ 187,192
Cost of sales 139,772 148,647
--------- ---------
Gross profit 41,925 38,545
--------- ---------
Operating costs and expenses:
Research and development 6,585 7,092
Selling and marketing 13,835 14,573
General and administrative 13,599 14,231
--------- ---------
Total operating costs and expenses 34,019 35,896
--------- ---------
Operating income 7,906 2,649
Foreign currency loss (289) (644)
Interest expense (13,908) (13,237)
--------- ---------
Loss before taxes (6,291) (11,232)
Income tax expense 571 -
--------- ---------
Net loss (6,862) (11,232)
Preferred dividends:
Senior redeemable preferred stock 2,818 2,455
Junior preferred stock 1,879 1,637
--------- ---------
Net loss attributable to common stock $ (11,559) $ (15,324)
========= =========
</TABLE>
See accompanying notes to the unaudited consolidated condensed financial
statements.
-4-
<PAGE> 6
COMMUNICATIONS & POWER INDUSTRIES, INC.,
and subsidiaries
(A wholly owned subsidiary of Communications
& Power Industries Holding Corporation)
CONSOLIDATED CONDENSED
STATEMENTS OF CASH FLOWS
(in thousands - unaudited)
<TABLE>
<CAPTION>
39-Week 39-Week
period ended period ended
June 30, July 2,
2000 1999
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net cash provided by operating activities $ 8,958 $ 7,801
-------- --------
INVESTING ACTIVITIES
Proceeds from sale of property, plant and equipment - 13
Purchase of property, plant and equipment, net (4,604) (6,582)
Purchase of net current assets in connection with acquisitions - (1,991)
Purchase of property, plant and equipment in connection
with acquisitions - (523)
Purchase of intangible assets in connection with acquisitions - (6,396)
-------- --------
Net cash used in investing activities (4,604) (15,479)
-------- --------
FINANCING ACTIVITIES
Net repayments on capital leases (632) (99)
Net proceeds from revolving credit facility - 19,200
Net repayments on senior term loans (4,944) (4,830)
Net Proceeds from stockholder loans 20 -
Purchase of treasury stock (23) -
-------- --------
Net cash (used in) provided by financing activities (5,579) 14,271
-------- --------
NET (DECREASE) INCREASE IN
CASH AND CASH EQUIVALENTS (1,225) 6,593
Cash and cash equivalents at beginning of period 4,247 448
-------- --------
Cash and cash equivalents at end of period $ 3,022 $ 7,041
======== ========
</TABLE>
See accompanying notes to the unaudited consolidated condensed financial
statements.
-5-
<PAGE> 7
COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
and subsidiaries
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands-unaudited)
<TABLE>
<CAPTION>
June 30, October 1,
ASSETS 2000 1999
--------- ---------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 3,022 $ 4,247
Accounts receivable, net 47,274 49,596
Inventories 62,727 52,526
Deferred taxes 6,899 6,899
Other current assets 1,458 1,524
--------- ---------
Total current assets 121,380 114,792
Property, plant, and equipment, net 71,141 76,225
Goodwill and other intangibles, net 26,718 28,723
Debt issue costs, net 4,853 5,594
Deferred taxes 8,250 8,250
--------- ---------
Total assets $ 232,342 $ 233,584
========= =========
LIABILITIES, PREFERRED STOCK AND
STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Revolving credit facility $ 35,000 $ 35,000
Current portion of term loans 6,996 7,700
Current portion of capital leases 941 885
Accounts payable 15,310 13,522
Accrued expenses 19,803 16,489
Product warranty 3,250 3,575
Income taxes payable 9,283 8,978
Advance payments from customers 7,633 1,736
--------- ---------
Total current liabilities 98,216 87,885
Senior term loans 12,000 15,986
Senior subordinated notes 100,000 100,000
Obligations under capital leases 1,137 1,825
--------- ---------
Total liabilities 211,353 205,696
--------- ---------
SENIOR REDEEMABLE PREFERRED STOCK OF SUBSIDIARY 27,206 24,228
--------- ---------
JUNIOR PREFERRED STOCK OF SUBSIDIARY 18,500 16,622
--------- ---------
Commitments and contingencies
STOCKHOLDERS' DEFICIT:
Common stock 49 49
Additional paid-in capital 19,111 19,134
Accumulated deficit (42,756) (31,039)
Stockholder loans (1,121) (1,106)
--------- ---------
Net stockholders' deficit (24,717) (12,962)
--------- ---------
Total liabilities, preferred stock and
stockholders' deficit $ 232,342 $ 233,584
========= =========
</TABLE>
See accompanying notes to the unaudited consolidated condensed financial
statements.
-6-
<PAGE> 8
COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
and subsidiaries
CONSOLIDATED CONDENSED
STATEMENTS OF OPERATIONS
(in thousands - unaudited)
<TABLE>
<CAPTION>
13-Week 13-Week
period ended period ended
June 30, July 2,
2000 1999
------------- ------------
<S> <C> <C>
Sales $ 66,367 $ 62,292
Cost of sales 49,894 54,034
-------- --------
Gross profit 16,473 8,258
-------- --------
Operating costs and expenses:
Research and development 2,476 2,332
Selling and marketing 4,737 4,987
General and administrative 4,876 6,012
-------- --------
Total operating costs and expenses 12,089 13,331
-------- --------
Operating income (loss) 4,384 (5,073)
Foreign currency loss (119) (203)
Interest expense (4,681) (4,386)
-------- --------
Loss before taxes (416) (9,662)
Income tax expense 170 422
-------- --------
Net loss (586) (10,084)
Preferred dividends:
Senior redeemable preferred stock 972 847
Junior preferred stock 648 565
-------- --------
Net loss attributable to common stock $ (2,206) $(11,496)
======== ========
</TABLE>
See accompanying notes to the unaudited consolidated condensed financial
statements.
-7-
<PAGE> 9
COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
and subsidiaries
CONSOLIDATED CONDENSED
STATEMENTS OF OPERATIONS
(in thousands - unaudited)
<TABLE>
<CAPTION>
39-Week 39-Week
period ended period ended
June 30, July 2,
2000 1999
------------ ------------
<S> <C> <C>
Sales $ 181,697 $ 187,192
Cost of sales 139,772 148,647
--------- ---------
Gross profit 41,925 38,545
--------- ---------
Operating costs and expenses:
Research and development 6,585 7,092
Selling and marketing 13,835 14,573
General and administrative 13,599 14,231
--------- ---------
Total operating costs and expenses 34,019 35,896
--------- ---------
Operating income 7,906 2,649
Foreign currency loss (289) (644)
Interest expense (13,908) (13,237)
--------- ---------
Loss before taxes (6,291) (11,232)
Income tax expense 571 -
--------- ---------
Net loss (6,862) (11,232)
Preferred dividends:
Senior redeemable preferred stock 2,818 2,455
Junior preferred stock 1,879 1,637
--------- ---------
Net loss attributable to common stock $ (11,559) $ (15,324)
========= =========
</TABLE>
See accompanying notes to the unaudited consolidated condensed financial
statements.
-8-
<PAGE> 10
COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
and subsidiaries
CONSOLIDATED CONDENSED
STATEMENTS OF CASH FLOWS
(in thousands - unaudited)
<TABLE>
<CAPTION>
39-Week 39-Week
period ended period ended
June 30, July 2,
2000 1999
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net cash provided by operating activities $ 8,958 $ 7,801
-------- --------
Proceeds from sale of property, plant and equipment - 13
Purchase of property, plant and equipment, net (4,604) (6,582)
Purchase of net current assets in connection with acquisitions - (1,991)
Purchase of property, plant and equipment in connection
with acquisitions - (523)
Purchase of intangible assets in connection with acquisitions - (6,396)
-------- --------
Net cash used in investing activities (4,604) (15,479)
-------- --------
FINANCING ACTIVITIES
Net repayments on capital leases (632) (99)
Net proceeds from revolving credit facility - 19,200
Net repayments on senior term loans (4,944) (4,830)
Net Proceeds from stockholder loans 20 -
Purchase of treasury stock (23) -
-------- --------
Net cash (used in) provided by financing activities (5,579) 14,271
-------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,225) 6,593
Cash and cash equivalents at beginning of period 4,247 448
-------- --------
Cash and cash equivalents at end of period $ 3,022 $ 7,041
======== ========
</TABLE>
See accompanying notes to the unaudited consolidated condensed financial
statements.
-9-
<PAGE> 11
COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
and subsidiaries
COMMUNICATIONS & POWER INDUSTRIES, INC.,
and subsidiaries
(A wholly owned subsidiary of Communications
& Power Industries Holding Corporation)
NOTES TO CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements of
Communications & Power Industries, Inc. ("CPI") and Communications & Power
Industries Holding Corporation ("Holding", both companies together referred to
as the "Company") have been prepared pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in annual financial statements have been condensed
or omitted and, accordingly, these financial statements should be read in
conjunction with the financial statements and the notes thereto contained in the
Company's October 1, 1999 Annual Report on Form 10-K. Management believes that
these unaudited interim condensed financial statements contain all adjustments,
all of which are of a normal recurring nature, necessary to present fairly the
financial position of the Company, and its results of operations and cash flows
for the interim period presented. The results for the interim periods reported
are not necessarily indicative of the results for the complete fiscal year 2000.
2. INVENTORIES
Inventories are stated at the lower of average cost or market (net realizable
value). The main components of inventories are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) June 30, October 1,
2000 1999
------- -------
<S> <C> <C>
Raw materials and parts $46,108 $39,953
Work in process 13,934 9,878
Finished goods 2,685 2,695
------- -------
Total inventories $62,757 $52,526
======= =======
</TABLE>
3. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest was $9.9 million and $9.3 million for the 39-week period
ended June 30, 2000 and July 2, 1999, respectively. Cash paid for taxes were
$(0.06) million and $1.6 million for the 39-week period ended June 30, 2000 and
July 2, 1999, respectively.
Non-cash financing activities of CPI included the payment of preferred stock
dividends on its Senior Redeemable Preferred Stock and its Junior Preferred
Stock through the issuance of 9,715 additional shares of its Senior Redeemable
Preferred Stock and 6,477 shares of its Junior Preferred Stock, respectively
during the quarter ended June 30, 2000. During the nine months ended June 30,
2000, CPI paid preferred stock dividends on its Senior Redeemable Preferred
Stock and its Junior Preferred Stock through the issuance of 28,171 additional
shares of its Senior Redeemable Preferred Stock and 18,781 shares of its Junior
Preferred Stock, respectively.
-10-
<PAGE> 12
COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
and subsidiaries
COMMUNICATIONS & POWER INDUSTRIES, INC.,
and subsidiaries
(A wholly owned subsidiary of Communications
& Power Industries Holding Corporation)
4. SEGMENTS AND RELATED INFORMATION
The Company has two reportable segments: vacuum electronic devices ("VEDs") and
satcom equipment. The CEO, identified as the Chief Operating Decision Maker,
evaluates performance and allocates resources based on the Company's principle
performance measure, earnings before income taxes, interest, depreciation and
amortization ("EBITDA").
Summarized financial information concerning the Company's reportable segments is
shown in the following table. Included in the "Other" column is financial
information for the Company's Solid State Products Division, which did not meet
the quantitative thresholds of SFAS 131, and certain unallocated corporate-level
operating expenses. Intersegment product transfers are recorded at cost.
(Dollars in thousands)
<TABLE>
<CAPTION>
Satcom
13-Week Period Ended VED's Equipment Other Total
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
June 30, 2000:
Revenues from external customers $ 51,448 $ 12,900 $ 2,019 $ 66,367
Intersegment product transfers 2,730 - 404 3,134
EBITDA 9,401 (932) (197) 8,272
July 2, 1999:
Revenues from external customers 45,911 14,222 2,159 62,292
Intersegment product transfers 4,332 - 528 4,860
EBITDA 1,285 (249) (2,844) (1,808)
</TABLE>
<TABLE>
<CAPTION>
Satcom
39-Week Period Ended VED's Equipment Other Total
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
June 30, 2000:
Revenues from external customers $ 139,102 $ 37,593 $ 5,002 $ 181,697
Intersegment product transfers 7,239 - 811 8,050
EBITDA 21,572 (166) (2,098) 19,308
July 2, 1999:
Revenues from external customers $ 135,816 45,248 6,128 $ 187,192
Intersegment product transfers 11,754 - 1,248 13,002
EBITDA 14,173 1,898 (3,843) 12,228
</TABLE>
-11-
<PAGE> 13
COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
and subsidiaries
COMMUNICATIONS & POWER INDUSTRIES, INC.,
and subsidiaries
(A wholly owned subsidiary of Communications
& Power Industries Holding Corporation)
A reconciliation of EBITDA from reportable segments to Loss before Taxes is as
follows:
<TABLE>
<CAPTION>
13-Week Period Ended 39-Week Period Ended
----------------------------- ------------------------------
(Dollars in thousands) June 30, 2000 July 2, 1999 June 30, 2000 July 2, 1999
-------------- ------------- --------------- -------------
<S> <C> <C> <C> <C>
Segment EBITDA $ 8,272 $ (1,808) $ 19,308 $ 12,228
Less:
Depreciation and amortization 4,007 3,468 11,691 10,083
Other - - - 140
Interest expense 4,681 4,386 13,908 13,237
-------- -------- -------- --------
Loss before taxes $ (416) $ (9,662) $ (6,291) $(11,232)
======== ======== ======== ========
</TABLE>
5. STOCK SPLIT AND STOCK OPTION DISCLOSURE
In March 2000, the Board of Directors approved an increase in the number of
common shares authorized to 6,500,000 and a twenty-five (25) for one (1) stock
split on all of its issued and outstanding shares of Common Stock. The Board of
Directors also approved the adoption of the 2000 Stock Option Plan ("the Plan").
The number of shares of Common Stock that will be reserved for issuance under
the Plan is 250,000. There were no stock options outstanding as of June 30,
2000. Prior year statements have been restated to give affect to the stock
split. This section on stock split and stock options applies only to Holding.
-12-
<PAGE> 14
COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
and subsidiaries
COMMUNICATIONS & POWER INDUSTRIES, INC.,
and subsidiaries
(A wholly owned subsidiary of Communications
& Power Industries Holding Corporation)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The Company serves the communications, radar, electronic countermeasures,
industrial, medical and scientific markets. In addition, the Company divides the
communications market into applications for ground-based satellite uplinks for
military and commercial uses ("satcom") and broadcast sectors. The Company
defines and discusses its orders and sales trends by the end markets to more
clearly relate its business to outside investors. Internally, however, the
Company is organized into six operating units that are differentiated based on
products. Four of these operating units comprise the Company's vacuum electronic
device ("VED") segment. The Company also has a satellite communications
equipment segment and a solid state products segment. Segment data is included
in Note 4 of the Notes to Consolidated Condensed Financial Statements.
Orders during the third quarter of Fiscal 2000 were $55.8 million as compared to
$65.6 million for the third quarter of Fiscal 1999. This decline of $9.8 million
for the quarter was due to the timing of order receipts, with much higher orders
being received earlier in this fiscal year, rather than a specific change in the
market. Orders for the first nine months of Fiscal 2000 of $201.7 million as
compared to $180.7 million during the same time period in Fiscal 1999, reflect a
higher demand for products in five of the Company's six markets. Communications
orders increased by $13.6 million, or 19.3%, primarily due to the Company's
participation in the terrestrial wireless portion of the XM Radio satellite
service, which will provide digital-quality audio programming across the United
States. Medical, radar, electronic countermeasures and industrial orders also
increased by $4.0 million, $3.0 million, $1.8 million and $1.0 million,
respectively. Orders for products sold to the scientific market declined by $2.4
million. Overall, incoming order levels fluctuate significantly on a quarterly
basis and a particular quarter's order rate may not be indicative of future
order levels. In addition, the Company's sales are highly dependent upon
manufacturing scheduling, performance and shipments and, accordingly, it is not
possible to accurately predict when these orders will be recognized as sales.
As of June 30, 2000, the Company had an order backlog of $164.8 million,
representing approximately eight months of sales, compared to order backlog of
$156.5 million, or approximately seven months of sales, as of July 2, 1999.
Order backlog increased during the first nine months of Fiscal 2000 by $20.4
million from $146.4 million at the end of Fiscal 1999, reflecting the increase
in orders mentioned above.
Sales for the third quarter of Fiscal 2000 were $66.4 million, an increase of
$4.1 million, or 6.5%, compared to $62.3 million for the same period in Fiscal
1999. This increase reflects the Company's expectation for higher sales in the
second half of this fiscal year due to improved backlog levels, customer-defined
delivery schedules and the transition of new communications products from
development to production. Sales for the first nine months of Fiscal 2000 were
$181.7 million compared to $187.2 million for the first nine months of Fiscal
1999. This reflects a decline of $5.5 million, or 2.9%, primarily due to the
roll out of new product to the Company's communications market that has delayed
sales into the latter part of the fiscal year. Sales for the first nine months
to the communications market were down by $10.8 million; however, as the order
receipts trend mentioned above indicates, this decline is not expected to
continue. The Company also experienced some decline in its scientific and
medical markets during the first nine months of Fiscal 2000 of $2.4 million and
$0.7 million,
-13-
<PAGE> 15
COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
and subsidiaries
COMMUNICATIONS & POWER INDUSTRIES, INC.,
and subsidiaries
(A wholly owned subsidiary of Communications
& Power Industries Holding Corporation)
respectively. Sales of scientific product declined due to lower order receipts
and the sporadic nature of product demand for energy research and the sales of
medical product, although much stronger in the third quarter, fell slightly
behind the same period last year due to specific customer delivery schedules.
Demand for the Company's products in its other three markets significantly
improved in the third quarter and resulted in nine months sales that were $8.4
million above the same period last year. These markets include radar with
increased sales of $5.0 million, electronic countermeasures with increased sales
of $2.5 million and industrial with increased sales of $0.9 million.
Gross profit for the third quarter of Fiscal 2000 was $16.5 million, or 24.8% of
sales, compared to $8.3 million, or 13.3% of sales, for the third quarter of
Fiscal 1999. Gross profit for the first nine months of Fiscal 2000 was $41.9
million, or 23.1% of sales, compared to $38.5 million, or 20.6% of sales, during
the first nine months of Fiscal 1999. This improvement was primarily due the
fact that Fiscal 2000 was not impacted by changes in management and
corresponding one-time charges of $6.0 million that unfavorably impacted gross
profit in Fiscal 1999. Excluding this $6.0 million charge from the third quarter
of Fiscal 1999, gross profit improved for the third quarter of Fiscal 2000 by
$2.2 million, or 15.5%, due to higher volume that more than offset higher
overhead costs related to new satcom products being transitioned out of
development. Excluding this charge from the first nine months of Fiscal 1999,
gross profit declined for the first nine months of Fiscal 2000 by $2.6 million,
or 5.9%, due to higher depreciation costs of $1.1 million and higher overhead
costs related to new products.
Operating costs and expenses were $12.1 million, or 18.2% of sales, for the
third quarter of Fiscal 2000 as compared to $13.3 million, or 21.4% of sales,
for the third quarter of Fiscal 1999. Operating costs and expenses for the first
nine months of Fiscal 2000 were $34.0 million, or 18.7% of sales, compared to
$35.9 million, or 19.2% of sales, for the first nine months of Fiscal 1999.
Again, this improvement was primarily due to the fact that Fiscal 2000 was not
impacted by changes in management and corresponding one-time charges of $1.6
million that unfavorably impacted operating costs and expenses in Fiscal 1999.
Excluding this $1.6 million charge from the third quarter of Fiscal 1999,
operating costs and expenses for the third quarter of Fiscal 2000 actually
increased by $0.4 million primarily due to slightly higher administrative costs
and research and development costs of $0.5 million and $0.1 million,
respectively, partially offset by lower marketing costs of $0.2 million.
Excluding this charge from the first nine months of Fiscal 1999, operating costs
and expenses declined for the first nine months of Fiscal 2000 by $0.3 million
due to lower research and development and lower marketing costs of $1.2 million
partially offset by higher depreciation costs of $0.5 million and higher
administrative spending of $0.4 million.
Earnings before interest, income taxes, depreciation and amortization
("EBITDA")(1) for the third quarter of Fiscal 2000 were $8.3 million, or 12.5%
of sales, compared to a loss of $1.8 million, or (2.9%) of sales, for the third
quarter of Fiscal 1999. Adjusting Fiscal 1999 EBITDA to exclude the one-time
charges mentioned above, EBITDA for the third quarter of Fiscal 2000 improved by
$2.5 million from the adjusted EBITDA for the third quarter of Fiscal 1999 of
$5.8 million, or 9.3% of sales, primarily due to higher volume and cost control
measures put into place. EBITDA for the first nine months of Fiscal
--------
(1) EBITDA is presented because some investors may use it as a financial
indicator of the ability to service or incur indebtedness. EBITDA should not
be considered as an alternative to net earnings (loss), as a measure of
operating results, cash flows or liquidity.
-14-
<PAGE> 16
COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
and subsidiaries
COMMUNICATIONS & POWER INDUSTRIES, INC.,
and subsidiaries
(A wholly owned subsidiary of Communications
& Power Industries Holding Corporation)
2000 was $19.3 million, or 10.6% of sales, consistent with adjusted EBITDA of
$19.8 million for the first nine months of Fiscal 1999, also approximately 10.6%
of sales. Overall, in the first nine months of Fiscal 2000, the Company has been
able to offset the impact of lower sales and higher costs associated with the
roll out of its new satcom products by improved performance in its other product
lines and by cost control measures throughout the organization.
FINANCIAL CONDITION
Cash flows provided by operating activities for the first nine months of Fiscal
2000 were $9.0 million, an increase of $1.2 million from the $7.8 million
provided by operating activities during the first nine months of Fiscal 1999.
This increase was due to a higher level of net earnings, excluding the non-cash
impact of depreciation and amortization, partially offset by a higher level of
working capital. Working capital has increased during Fiscal 2000 primarily due
to higher inventory levels required to meet future customer demand. Inventory
has increased by $10.2 million from the beginning of the fiscal year but has
been partially offset by advanced payments from customers that have also
increased by $5.9 million and by accounts payable levels that have increased by
$1.8 million.
Investing activities decreased cash by $4.6 million in the first nine months of
Fiscal 2000 compared to $15.5 million in the first nine months of Fiscal 1999.
This decrease of $10.9 million was primarily related to the fact that Fiscal
1999 was impacted by the Company's $8.9 million acquisition of its Solid State
Products Division. Capital expenditures have also been reduced by $2.0 million
during the first nine months of Fiscal 2000. The Company currently anticipates
that capital expenditure requirements during the last three months of Fiscal
2000 will be similar to the amount spent in the last three months of Fiscal
1999, approximately $2.0 million, thus allowing it to maintain this lower level
of investing activity year over year.
The Company's primary source of liquidity, other than funds generated from
operations, is the $45.0 million revolving credit facility provided under its
senior credit agreement (of which $6.0 million was available as of June 30,
2000). In the nine months of Fiscal 2000, the Company has maintained its level
of borrowing under this facility but has repaid $4.7 million of term loans and
$0.6 million of its debt related to capital leases. Management believes that the
Company will have adequate capital resources and liquidity (including cash flow
from operations and borrowing under its revolving credit facility) to meet its
obligations, fund all required capital expenditures and pursue its business
strategy for the foreseeable future and, in any event, for the next six months.
The Company's Senior Credit Agreement is scheduled to terminate on January 1,
2001 but management anticipates extending this agreement or replacing it before
the end of the calendar year.
Market Risk
The Company's market risk disclosures set forth in its Annual Report on Form
10-K for the fiscal year ended October 1, 1999 have not changed significantly.
-15-
<PAGE> 17
COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
and subsidiaries
COMMUNICATIONS & POWER INDUSTRIES, INC.,
and subsidiaries
(A wholly owned subsidiary of Communications
& Power Industries Holding Corporation)
Forward-Looking Information
Except for historical information, this Management's Discussion and Analysis
contains forward-looking statements that involve risks and uncertainties that
could cause actual results to differ materially from those projected. Such risks
and uncertainties include: product demand and market acceptance risks; the
effect of general economic conditions; the impact of competitive products and
pricing; new product development and commercialization; technological
difficulties and the ability to increase margins; the timing of renewed growth
in the Far East; U.S. Government export policies; and other risks detailed from
time to time in the Company's filings with the Securities and Exchange
Commission.
-16-
<PAGE> 18
COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION
and subsidiaries
COMMUNICATIONS & POWER INDUSTRIES, INC.,
and subsidiaries
(A wholly owned subsidiary of Communications
& Power Industries Holding Corporation)
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2: CHANGES IN SECURITIES
In March 2000, the Board of Directors approved an increase in the number of
common shares authorized from 400,000 to 6,500,000 and a twenty-five (25) for
one (1) stock split on all of its issued and outstanding shares of Common Stock.
This increase in shares and stock split applies only to Communication & Power
Industries Holding Corporation.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits are being filed as part of this report:
27.1 Financial Data Schedule (Communications & Power Industries, Inc.)
27.2 Financial Data Schedule (Communications & Power Industries
Holding Corporation)
(b) Reports on Form 8-K:
No reports were filed on Form 8-K during the quarter ended June 30, 2000.
-17-
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
COMMUNICATIONS & POWER INDUSTRIES, INC.
By: /s/ Bart F. Petrini
---------------------------------------------------
Bart F. Petrini
Chief Executive Officer and President
Date: August 11, 2000
By: /s/ Lynn E. Harvey
---------------------------------------------------
Lynn E. Harvey
Chief Financial Officer, Treasurer and Secretary
(Principal Financial and Accounting Officer)
Date: August 11, 2000
-18-
<PAGE> 20
EXHIBIT INDEX
27.1 Financial Data Schedule (Communications & Power Industries, Inc.)
27.2 Financial Data Schedule (Communications & Power Industries
Holding Corporation)
-19-
